First Impressions

The elusive cross-asset world
Alun Green – SunGard
I’ve spent much of my career in the sleepy world of investment bank back offices. And although we have had a bit of a wake up call, I still don’t see too much change happening when it comes to leaving behind a systems infrastructure based on asset classes for one based on capabilities.

The traditional sell-side organization with its asset class silos just doesn’t resonate with the needs of the buy side. Consolidating information on a portal is one good step as is having a single stop shop for client services. But in order to make this an efficient reality firms need to take a more detailed view of their operating model that is granular enough to capture not only the similarities but also the differences between process activities in the front, middle, and back office. But having done that is there technology to support this new model?

In the consumer world we used to have technology silos. Listening to music required a variety of different products, calling people was on dedicated phones, and if you needed a health check that was usually a visit to the doctor. But over the last ten years we have seen this move to multi-function devices based on what a user needs. We carry a smartphone when we are out and about, pick up a tablet when relaxing at home and of course wear a wristband to constantly monitor our activity.

Couldn’t we benefit from the same in our world?

Note: Green is acting as guest editor this week for the John Lothian Newsletter, and this commentary appeared in today’s issue. To read the newsletter, click here:
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Quote of the Day

If my mindset is negative, this will likely have an effect on the whole country. I have to be as cheerful as possible.

Japan’s Prime Minister Shinzo Abe, as quoted in the Bloomberg story “Abe Learns About Animal Spirits From Nobel Winner Shiller”

Lead Stories

Chasing Yield, Investors Plow Into Junk Bonds
Tom Lauricella and Katy Burne – WSJ.com
Large investors are rushing into the riskiest corporate bonds, frustrated by low interest rates on safer investments and convinced that even companies with shaky finances are in little danger of default.
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***DA: Remember where the yield chase got us last time? How soon we forget.

Deutsche Bank Increases Sale of Capital Notes to $4.75 Billion
John Glover – Bloomberg
Deutsche Bank AG increased its sale of subordinated notes to $4.75 billion as Germany’s biggest lender seeks to bolster capital ratios.
The Frankfurt-based bank initially marketed about $4 billion of additional Tier 1 bonds in dollars, euros and pounds that it can buy back after six, eight and 12 years, according to a person familiar with the deal, who asked not to be identified because the deal has not been completed.
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***DA: Speaking of junk bonds – these are expected to rate a couple notches below investment grade.

JPMorgan to HSBC Accused by EU Over Rate-Rigging Cartel
Gaspard Sebag – Bloomberg
JPMorgan Chase & Co., HSBC Holdings Plc and Credit Agricole SA were accused today by the European Union’s antitrust arm of colluding to manipulate interbank lending rates.
The trio received antitrust complaints alleging they participated in a cartel to rig Euribor. The so-called statement of objections is the next step in the EU enforcement process after the lenders dropped out of settlement talks last year.
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***DA: The hits keep coming.

Abe Learns About Animal Spirits From Nobel Winner Shiller
Andy Sharp and Keiko Ujikane – Bloomberg
Three weeks before Japan increased its sales-tax for the first time in 17 years, Prime Minister Shinzo Abe turned to Nobel laureate Robert Shiller to try to restore a vital ingredient of his economic revolution: optimism.
Abe met the Yale University professor in Tokyo on March 10 to discuss how to reverse what the Japanese leader calls the “shrunken mindset” entrenched in the country after two decades of economic stagnation.
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***DA: Shrunken mindset. That is not a nice thing to say about one’s constituents.

China’s banks line up extra capital cushion
Josh Noble in Hong Kong – FT.com
China’s banks are poised to raise tens of billions of dollars via preferred share issues in the coming months, as they look to boost capital ratios ahead of strict new regulations and a potential rise in bad loans.
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***DA: Creating a cushion through new debt issuance. How American of them.

China property slowdown spells trouble for Asia bonds
Henny Sender – FT.com
In May Central China Real Estate, one of the Chinese mainland’s many property developers, proposed issuing Singapore dollar-denominated notes, to refinance a convertible bond due in August.
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***DA: Get to work on that cushion. You are going to need it.

Long-Bond Frenzy Gains Strength as Sales Surge: Credit Markets
Katie Linsell – Bloomberg
The cheapest long-term borrowing costs on record are enticing companies into the bond market and allowing them to lock in rates for up to 100 years.
“My treasurer tells me always borrow when you can, not when you have to,” said Simon Henry, chief financial officer at Royal Dutch Shell Plc.
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Malbec-Making Central Banker Imperils Argentina’s Bonds
Camila Russo – Bloomberg
Juan Carlos Fabrega, Argentina’s central bank president, is threatening to squander the confidence he’s earned in the bond market.
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Central Banks

The Federal Reserve: Supersize me
The Economist
AMONG the many questions surrounding the Federal Reserve’s programme of quantitative easing (QE) is what will happen to the vast stockpile of bonds it has accumulated in its efforts to lower interest rates. Officials at the bank have never been comfortable with their gargantuan balance-sheet. Since 2011 they have maintained that once QE has achieved its aims, the Fed would shrink back to its former size. As its bonds mature, the story goes, they will disappear from its balance-sheet, along with the money the Fed created to pay for them. A new paper by two former advisers to the central bank, however, suggests a potential plot twist.
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Fed’s super-easy policies pose risks, officials say
Reuters
The Federal Reserve’s super-easy policies, if pursued for too long, could have adverse consequences in the long run, two top Fed officials said on Monday, although the biggest risk is not runaway inflation.
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Yellen Adds Disadvantaged to Full-Employment Definition
Craig Torres – Bloomberg
The year was 1999, the unemployment rate was 4.3 percent, and President Bill Clinton’s top economic adviser had a message for economists gathered at Yale University: Tight labor markets are beneficial for blacks, Hispanics and male high-school dropouts.
The speaker was Janet Yellen, and she brings the same empathy for the disadvantaged to her current job as chair of the Federal Reserve.
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***JB: I am hard pressed to think of the last time the government changed definitions to make economic numbers look worse.

The governor’s eyebrows: still functioning
FT Alphaville
Of course, a cynic might say that any sign of an early end to the policy will actually create a paroxysm of demand for the Buy A Massive House Free Money Woo Yeah! scheme. A bit like when a past government abolished mortgage interest relief back in the day.
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ECB Weighing Fed-Style Meeting Schedule on Policy
Jeff Black, Alessandro Speciale and Stefan Riecher – Bloomberg
The European Central Bank is considering holding its meetings to set interest rates every six weeks instead of monthly, according to four people familiar with the discussions.
Extending the period between monetary policy decisions could help the ECB to agree on and publish minutes before the next rate-setting session, the people said, asking not to be identified because the plans are still being discussed.
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Draghi as Committed as a Central Banker Gets, as Economists Await ECB Stimulus
Alessandro Speciale and Andre Tartar – Bloomberg
Ninety percent of economists in the Bloomberg Monthly Survey predict the European Central Bank president will ease monetary policy in June after saying on May 8 that officials are “comfortable” with acting then. While that allows investors to prepare for added stimulus and a weaker euro, it also sets them up for a bigger disappointment should he fail to deliver.
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Currencies

FX is Feeling Sleepy. Very Sleepy
Katie Martin – MoneyBeat – WSJ
The currencies market is in a deep sleep, the sort of mushy slumber normally associated with August. Big currencies are wedged in ranges tighter than anyone has seen for decades. Tumbleweed rolls across trading floors. (OK, that last bit might be an exaggeration, but so many traders have left the business in recent months, there’s plenty of room.) So what’s going on?
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***DA: As one of those ex-TX traders who has sought employment elsewhere, I can say that, yes, tumbleweeds do roll across trading floors occasionally.

Currency trading volumes dive in April -CLS
Reuters
Average daily volumes in the global foreign exchange market sank by half a trillion dollars in April compared to a month earlier, dipping below the $5 trillion mark for the first time this year, data from FX settlement system CLS showed.
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***DA: But don’t just take my word for it.

EBS Appoints Allmark
Profit & Loss
Icap’s electronic FX business EBS has appointed Paul Allmark to a newly created role as global head of e-commerce solutions
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Rabobank Shuts Down FXPB Activities
Profit & Loss
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Forex traders target timezone arbitrage
Jamie Chisholm – FT.com
Attention US forex traders, if you want to make money in the euro/dollar (EURUSD) then start the day taking the opposite position on your European cousins. That’s what can be inferred from an interesting note by Richard Cochinos, forex strategist at Citi.
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HK-Shanghai stock tie-up could hit currency volatility
Justin Lee – Risk.net
Potential irregular flows in and out of Hong Kong’s equity markets from mainland investors via the Shanghai-Hong Kong Stock Connect could drive CNH volatility higher say analysts, but the announcement has not yet impacted short-term CNH futures pricing.
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Why the golden goose market may be decaying
Izabella Kaminska | FT Alphaville
That Isaac Newton, one of the greatest minds that ever lived, was both mathematician and physicist and alchemist and gold standard enthusiast seems in the context of the bitcoin movement oddly appropriate. After all, nothing represents the fusing of mystical alchemical forces with the principals of physics and maths better than a crypto-currency — especially when its supply is designed to be purposefully rigid, like gold.
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Bitcoin Exchanges Probed Over Shuttered Drug Market
Christopher M. Matthews – WSJ.com
U.S. authorities have opened a new front in their investigation into bitcoin exchanges and other businesses that deal in the online currency, examining possible ties between the firms and the online drug bazaar Silk Road, according to people familiar with the matter. The new focus of the investigation is the latest indication of how the shuttered online drug market has become linked to bitcoin, tainting the currency with associations of shady activity as its advocates stress to regulators its legitimacy.
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New Bitcoin Foundation Director Pierce Defends Himself in Letter to Board
Michael J. Casey – MoneyBeat – WSJ
Bitcoin entrepreneur Brock Pierce has written to his fellow board members at the Bitcoin Foundation to declare his innocence against sex abuse allegations dating back 14 years, which have resurfaced and fueled tension within the digital-currency advocacy group.
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Is the Fed quietly planning new bitcoin regulations?
Christopher Matthews – Fortune
When Janet Yellen stated in February that the Federal Reserve had no authority to regulate bitcoin, many fans of the virtual currency were elated.
After all, for many believers in virtual currency, the Federal Reserve is enemy No. 1, an institution that has so badly mismanaged the U.S. dollar as to necessitate the creation of a decentralized currency like bitcoin.
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Indexes & Index Products

LSE’s rationale for buying Russell
Philip Stafford – FT.com
The resurging confidence at the London Stock Exchange Group was underlined on Tuesday by its confirmation that it was in exclusive talks to buy Russell Investments. As the US group has an enterprise value of around $2.4bn, it would make the deal the LSE’s largest purchase to date, surpassing the GBP1.7bn it paid in 2007 for Borsa Italia.
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BlackRock advances in pursuit of ETFs with non-daily disclosure
Reuters
BlackRock Inc, the largest U.S. provider of exchange-traded funds, has moved a step further toward launching a new breed of ETFs that would be allowed to keep holdings under wraps for months, instead of the daily disclosure now required.
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Launch Of The Solactive US Energy Infrastructure MLP Index – First ETF In Europe On Infrastructure MLPs Listed By ETF Securities
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Gold

Europe central banks commit to hold gold
Xan Rice – FT.com
Gold bulls received a boost on Monday as European central banks renewed a five-year agreement by committing not to sell “significant” amounts of the precious metal.
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China Gold Demand Drops 18% in 1Q on Fewer Bar Sales
Bloomberg
China’s gold demand fell 18 percent in the first quarter as investors in the world’s biggest user bought fewer bars and coins, offsetting record interest in jewelry, the World Gold Council said.
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Gold Deals Remain Likely Despite Barrick-Newmont Merger’s Collapse
WSJ.com
The big dilemma for gold miners: There ain’t much gold left. Barrick Gold Corp. and Newmont Mining Corp. called off a planned $33 billion merger several weeks ago, trading barbs over who was to blame. But many investors said the world’s two biggest gold producers are just postponing inevitable consolidation at the top of the embattled…
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Gold Demand Trends First Quarter 2014
World Gold Council
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Gold, silver lower ahead of Fed speakers, FOMC minutes
Investing.com – (via NASDAQ.com)
Gold and silver prices edged lower on Tuesday, as market players looked ahead to the minutes from the Federal Reserve’s latest monetary policy meeting, due for release on Wednesday, for insight on the central bank’s view of the economy.
Later Tuesday, Federal Reserve Bank of Philadelphia Charles Plosser and Federal Reserve Bank of New York President William Dudley are to speak.
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